Do you remember the double-dip recession of 2012? It’s a collector’s item. Two years into a slow climb from the nadir of the 2008-09 slump, Britain’s Office for National Statistics announced that the UK’s economy had shrunk by 0.2 per cent in the last quarter of 2011, and the same again in the first three months of 2012. But then it changed its mind.
By mid-2013, the ONS had taken another look at the data and decided that output had been flat during the first quarter of 2012: recession retracted. The revisions continued and as of today the ONS’s best estimate is that Britain’s economy grew by 0.8 per cent in Q1 2012 — a full percentage point upgrade in all.
If it sounds like I’m being critical, it shouldn’t. Measuring gross domestic product is extremely complicated. Around the world, national statistics offices are struggling to get the sums right the first time around.
Some struggle more than others. When Ireland first reported its estimate for GDP growth in Q1 2015, it came in at 1.4 per cent. One year later, and with some fairly unique distortions due to its location as headquarters for many US big tech and pharma companies, this was revised upwards to an eye-watering 21.4 per cent.
On average, five years after an estimate of quarterly Irish GDP growth is first published, the latest revision of that figure is two full percentage points off the original value. The equivalent for the UK is almost 10 times smaller at 0.25 percentage points, making the ONS’s initial estimates among the most accurate in the developed world, narrowly ahead of the US at 0.26 and well ahead of the likes of Japan (0.46) and Norway (0.56).
But it’s not just the size of revisions that matters, it’s the direction. Out of 24 developed countries that consistently report quarterly GDP revisions to the OECD, the UK’s initial estimates are the most pessimistic. Britain’s quarterly growth figures typically end up 0.15 percentage points higher than first thought. The Germans go up by 0.07 on average, the French by 0.04, while the Americans, ever optimistic, typically end up revising their estimates down by 0.11 percentage points.
In other words, next time you hear a set of quarterly growth figures, it wouldn’t be unreasonable to mentally add 0.15 to the UK one and subtract 0.11 from the US.
This may all sound like nerdy detail, but it matters because people graft strong narratives on to this remarkably flimsy data. Britain was the only G7 economy yet to rebound past pre-Covid levels until it wasn’t. Ireland is booming, apparently, except its actual individual consumption per capita — a much better measure of living standards than GDP — has fallen steadily from just above the western European average in 2007 to 10 per cent below last year.
And the phenomenon is not exclusive to economic data. Two years ago, progressives critical of the government’s handling of the pandemic took to calling the UK “Plague Island”, citing Britain’s reported Covid death rates, which were among the highest in the developed world. But with the benefit of hindsight, we know that Britain was simply better at counting its deaths than most countries.
Once the dust had settled, the UK was in the middle of the pack for pandemic mortality. It was not simply that two years ago Britain was faring badly and then things improved: Britain had always been faring better than the initial data suggested.
A rare example of careful analysts refusing to allow flimsy data to shape the narrative came in the US last year, when the National Bureau of Economic Research’s business cycle dating committee simply decided that although estimated GDP had contracted for two straight quarters, more tangible indicators such as job numbers suggested this would be only a brief blip. No recession was called.
We could all learn from the American approach. GDP figures remain the go-to statistic for tracking progress both within and between countries, but when these famously fuzzy figures point in one direction while more reliable or tangible statistics point in another, perhaps we should pause before jumping to conclusions.
john.burn-murdoch@ft.com, @jburnmurdoch
Source: Economy - ft.com
